David Kotok: The Gulf Oil Spill Has Gone From Bad To Worse, With Damages Into The Tens Of Billions Of Dollars

Last week, Cumberland’s David Kotok made headlines with his piece on Oil Slickonomics, which predicted that in the ugliest case scenario, the Gulf oil spill could destroy the economy of the gulf for a generation and push us into another recession.

Well, we’re not there yet says Kotok, but we have gone from bad to worse.

He writes:

Within days we will have reached the second level of damages in the Gulf of Mexico.  Under our “worse” scenario the total will be in the many tens of billions before this is all over.  There are now early reports of “tar balls” washing up on beaches.  Damage is now witnessed in Alabama, Louisiana, and Mississippi.  NOAA has expanded the no-fishing zone to about “4.5 per cent of Gulf of Mexico federal waters.” The original closure boundaries, which took effect Sunday, May 2, encompassed “less than three per cent.”
Readers please note that this event is still mostly confined to United States “federal waters,” which are under NOAA jurisdiction.  International claims are a more complex financial liability for BP and its partners.
So far, BP has offered US-based fishermen a one-month-pay settlement package.  This is being routinely rejected, according to the professional fishermen we have been able to reach.  If this spillage continues, as we project under our second and “worse” scenario, and IF it can be limited to that scenario and doesn’t worsen to “ugliest,” the ultimate loss of income to fisherman will continue over many, many months or even years.
According to NOAA, “There are 3.2 million recreational fishermen in the Gulf of Mexico region who took 24 million fishing trips in 2008. Commercial fishermen in the Gulf harvested more than 1 billion pounds of finfish and shellfish in 2008.”  BP’s offer of one month’s pay is a pittance when compared with the ultimate damages that will be suffered by the fishing industry.
Some readers have asked about the federal fund that is designed to pay for cleanups of oil spills.  It is funded by an eight-cent-per-barrel tax and is wholly inadequate for this type of catastrophic event.  In the wake of the BP explosion, three Senators have offered a bill to broaden the scope of the fund and raise the tax.

Here’s what Kotok wrote May 2 in the original piece on the “worse” scenario:

The containment attempts fail and oil spews for months, until a new well can successfully be drilled to a depth of 13000 feet below the 5000-foot-deep ocean floor, and then concrete and mud are injected into the existing ruptured well until it is successfully closed and sealed.  Work on this approach is already commencing.  Timeframe for success is at least three months.  Note the new well will have to come within about 20 feet of the existing point where the original well enters the reservoir at a distance of 3.5 miles from the surface drilling rig.  Damages by this time may be measured in the hundreds of billions.  Cleanup will take many, many years.  Tourism, fishing, all related industries may be fundamentally changed for as much as a generation.  Spread to Mexico and other Gulf geography is possible.

Don’t miss: How the oil spill would look over your city >

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